Explained: New rules for same-day stock settlement and impact on investors

No Instantaneous Settlement Yet: Sebi has not yet approved the option for instantaneous settlement, where money and stocks are exchanged immediately upon trade execution.

Different brokerage fees: All registered stock brokers will have the opportunity to offer access to the optional T+0 settlement cycle to their clients and are permitted to charge differential brokerage fees for transactions conducted under this expedited settlement cycle.

Benefits:

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  Faster Access to Funds: Sellers will receive their money quicker under the T+0 settlement, improving liquidity.
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  Increased Efficiency: The T+0 system could potentially improve the overall efficiency of the stock market.

Considerations:

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  Phased Implementation: The expansion of eligible stocks for T+0 settlement will happen gradually, so not all stocks will benefit immediately.
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  Potential Risks: The T+0 system may need monitoring for potential risks, such as increased volatility or settlement failures.

The initiative was first approved in March 2024 and launched in a beta version on the exchanges. All registered brokers can offer access to the optional T+0 settlement cycle to their investors and are free to charge differential brokerage for the same.

Sebi mandates broker and custodian preparedness for T+0 Settlement

To ensure a smooth transition to the expanded T+0 settlement cycle for equity trades, Sebi has mandated certain requirements for brokers and custodians.

Key Requirements:

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  Qualified Stock Brokers (QSBs): Brokers designated as QSBs must establish systems and processes to effectively accommodate their clients’ participation in T+0 settlements.
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  Minimum Client Base: QSBs must meet a minimum threshold of active clients to qualify for handling T+0 trades.
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  Custodian Preparedness: Custodians are also required to implement necessary systems to support T+0 settlement.

Implementation Timeline:

Sebi will determine an appropriate timeframe for implementation after consulting with relevant stakeholders, including brokers, custodians, and other market participants.

T+0 settlement would allow investors to benefit from immediate trade execution and settlement, providing them with improved flexibility to capitalise on short-term trading opportunities and market fluctuations.

 

Investors can react quickly to market developments, execute trades promptly, and optimise their investment strategies in real-time.

 

Reduced Settlement Risk

T+0 settlement eliminates the need to wait for an additional day for trading confirmation and settlement.

T+0 Settlement: Current Status 

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  Optional Nature: T+0 settlement remains an optional mechanism and runs parallel to the traditional T+1 settlement.
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  Limited Usage: Only five of the 25 eligible scrips have seen any T+0 trades.
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  Recent Decline: T+0 trades have dried up in recent months, with the last trades on NSE and BSE occurring in June and September, respectively.
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  Low Turnover: The total turnover through T+0 settlements has been less than Rs. 10 lakh.

Challenges and considerations

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  The success of T+0 depends on investor demand and awareness.
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  Brokers need to actively offer the T+0 option to their clients for it to gain traction.
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  Sebi has not yet approved instantaneous settlement, which could be a game-changer.
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  The T+0 system could be more attractive to FPIs once the necessary systems are in place.
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  Sebi has allowed brokers to charge differential brokerage for T+0 trades.

While the T+0 settlement option offers potential benefits, its success will depend on factors such as investor demand, broker adoption, and the availability of instantaneous settlement.

First Published: Oct 02 2024 | 10:53 AM IST